FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-17508
TELESCAN, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 72-1121748
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5959 CORPORATE DRIVE, SUITE 2000, HOUSTON, TEXAS 77036
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(Address of principal executive offices) (Zip Code)
(281) 588-9700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
$.01 par value per share Common Stock: 16,701,534 as of May 15, 2000.
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TELESCAN, INC. AND SUBSIDIARIES
Report on Form 10-Q
Quarter Ended March 31, 2000
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements ............................................... 3
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 8
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ......... 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................. 12
ITEM 2. Changes in Securities and Use of Proceeds .......................... 12
ITEM 3. Defaults upon Senior Securities .................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders ................ 12
ITEM 5. Other Information .................................................. 12
ITEM 6. Exhibits and Reports on Form 8-K ................................... 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash ........ $ 7,147 $ 12,625
Accounts receivable, net (allowance: $408; $299) . 6,462 5,033
Notes receivable .................................. 4,582 5,468
Other current assets .............................. 702 552
-------- --------
TOTAL CURRENT ASSETS ........................ 18,893 23,678
Marketable securities ............................... 40,520 46,761
Software development costs, net ..................... 4,260 4,506
Property and equipment, net ......................... 3,939 3,644
Investments ......................................... 4,192 3,919
Other assets ........................................ 996 391
-------- --------
TOTAL ASSETS ................................ $ 72,800 $ 82,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................. $ 3,160 $ 3,550
Deferred revenue .................................. 8,702 8,817
Other current liabilities ......................... 3,026 1,262
-------- --------
TOTAL CURRENT LIABILITIES ................... 14,888 13,629
Capital lease obligations ........................... 203 271
Deferred taxes ...................................... 4,793 11,229
STOCKHOLDERS' EQUITY:
Convertible preferred stock
(liquidation preference $25
per share) (shares issued
and outstanding: 120,000; 120,000) ............... 1 1
Common stock
(shares issued and outstanding:
16,694,117; 16,548,859) ........................... 166 165
Additional paid in capital .......................... 67,705 66,875
Accumulated comprehensive income .................... 4,490 18,321
Accumulated deficit ................................. (19,446) (27,592)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .................. 52,916 57,770
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 72,800 $ 82,899
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
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TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
REVENUE
Service ..................................................... $ 9,754 $ 4,607
Products .................................................... 73 129
-------- --------
TOTAL REVENUE .......................................... 9,827 4,736
COSTS AND EXPENSES
Cost of service ............................................. 4,702 2,963
Cost of products ............................................ 78 80
Marketing expenses .......................................... 1,495 1,112
General and administrative .................................. 5,573 1,749
-------- --------
TOTAL COSTS AND EXPENSES ............................... 11,848 5,904
-------- --------
Loss from operations ........................................... (2,021) (1,168)
OTHER INCOME (EXPENSE)
Gain on sale of marketable securities ....................... 12,001 --
Interest income (expense), net .............................. 244 (29)
Other, net .................................................. -- (60)
-------- --------
TOTAL OTHER INCOME ..................................... 12,245 (89)
-------- --------
Income (loss) before income taxes
and minority interest ........................................ 10,224 (1,257)
Income tax expense .......................................... (2,041) --
Minority loss ............................................... -- 32
-------- --------
NET INCOME (LOSS) .............................................. 8,183 (1,225)
Less: Preferred stock dividends .......................... (37) (38)
-------- --------
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS .............. $ 8,146 $ (1,263)
======== ========
Net income (loss) per common share
Basic ....................................................... $ 0.49 $ (0.09)
Diluted ..................................................... $ 0.47 $ (0.09)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
Net income (loss) .............................................. $ 8,183 $ (1,225)
Change in unrealized gains (losses) on marketable securities ... (22,309) 4,760
Deferred taxes on net unrealized gains (losses) on marketable
securities ................................................... 8,478 (1,618)
-------- --------
Comprehensive income (loss) ............................ $ (5,648) $ 1,917
======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 8,183 $ (1,225)
Reconciling adjustments:
Gain on sale of GlobalNet stock ....................... (12,001) --
Minority interest in loss of subsidiary ............... -- 32
Depreciation and amortization ......................... 927 772
Changes in assets and liabilities:
Increase in receivables ............................... (831) (223)
Decrease in other current assets ...................... 61 33
Decrease in accounts payable .......................... (918) (569)
Increase (decrease) in other current liabilities ...... 1,325 (79)
Increase in deferred tax liability .................... 2,041 --
-------- --------
Net cash used in operating activities ............ (1,213) (1,259)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................... (894) (301)
Additions to software development cost ................ (226) (310)
Purchases of investments .............................. (3,504) (244)
Other ................................................. 43 23
-------- --------
Net cash used in investing activities ............ (4,581) (832)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock ............... -- 8,656
Proceeds from exercise of stock options ............... 481 752
Preferred dividends paid .............................. (37) (38)
Equity transaction of pooled company, net of cash ..... -- (160)
Payments on notes payable and capital lease obligations (128) (178)
Other ................................................. -- 37
-------- --------
Net cash provided by financing activities ........ 316 9,069
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... (5,478) 6,978
CASH AND CASH EQUIVALENTS:
Beginning of period ................................... 12,625 1,539
-------- --------
End of period ......................................... $ 7,147 $ 8,517
======== ========
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES WERE AS
FOLLOWS:
Net unrealized gain (loss), net of tax ................ $ 2,597 $ 3,142
Exercise of GlobalNet Financial.com option through sale
of GlobalNet Financial.com stock ................... 19,971 --
Stock received in lieu of accounts receivable payment . 743 --
Acquisition of assets for stock ....................... 350 --
Conversion of note receivable into equity investment .. 64 --
Company common stock exchanged for investment in
GlobalNet Financial.com ............................ -- 6,335
Stock received for services and license fees .......... -- 3,741
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements reflect the accounts of Telescan, Inc.
(the "Company") and it's wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1999 included in the Company's Annual Report on Form 10-K/A.
The Company has restated its 1999 and 1998 financial statements and has filed a
Form 10-K/A which brings the Company into compliance on Emerging Issues Task
Force ("EITF") Issue No. 00-3. The EITF consensus indicated that for those
agreements in which hosting by the vendor is essential to the functionality of
the software, the license revenue arising from those agreements should be
recognized over the term of the hosting arrangement.
The consolidated financial statements and notes thereto at March 31, 2000
reflect the May 31, 1999 acquisition of INVESTools, Inc. ("INVESTools"). The
acquisition was accounted for as a pooling-of-interests. Accordingly, the
consolidated financial statements of the Company for the three-month period
ending March 31, 1999 have been restated.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, the information
furnished reflects all adjustments, consisting of normal recurring adjustments,
which are necessary to make a fair presentation of financial position and
operating results for the interim periods. The results of operations for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
2. CONTINGENCIES
From time to time the Company is involved in certain legal actions arising in
the ordinary course of business. It is the opinion of management that such
litigation will be resolved without a material effect on the Company's financial
position or results of operations.
Effective June 11, 1999 the Company terminated its contract with Web Street
Securities, Inc. ("Web Street"). The Company activated the mandatory mediation
provision in the contract and participated in the mediation. The differences
between the Company and Web Street were not resolved at the mediation, and on
December 13, 1999, the day of the mediation, Web Street sued the Company
alleging that the Company did not perform its obligations under the contract and
seeking damages for lost profits. The Company filed a counterclaim alleging and
seeking damages for non-payment of amounts due and unpaid for services rendered.
CyberAction, Ltd. ("CyberAction") and the Company entered into a Marketing,
License and Revenue Sharing Agreement (the "Agreement") dated May 21, 1996, as
amended, granting certain international marketing rights to CyberAction. The
parties have disagreed about contractual provisions and obligations. Pursuant to
the Company's globalization efforts, the Company has engaged in negotiations to
terminate the Agreement and believes settlement will be reached during second
quarter 2000 for which it has accrued $1.5 million at March 31, 2000 for costs
associated with the settlement.
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3. MARKETABLE SECURITIES TRANSACTIONS
In March 2000, the Company agreed to license its proprietary technology and
investment analytics to Stockwalk.com Group, Inc. ("Stockwalk") in exchange for
142,333 shares of common stock of Stockwalk, with warrants attached to purchase
an additional 14,233 shares, valued at $7.50 per share. In a separate agreement,
the Company purchased an additional 166,667 shares of Stockwalk common stock
with warrants attached to purchase an additional 16,667 shares, for $1.25
million in cash at a price of $7.50 per share. This investment is classified as
available-for-sale and carried at fair market value with changes in fair market
value included in comprehensive income, net of tax, and classified as separate
component of stockholders' equity.
In March 2000, the Company invested $1.75 million to acquire 872,128 shares of
InvestorIQ.com PLC, a UK public limited company. The acquisition represented a
13.3% interest in the company at the date of acquisition. This investment is
classified as available-for-sale and carried at fair market value with changes
in fair market value included in comprehensive income, net of tax, and
classified as a separate component of stockholders' equity.
In March 2000, the Company sold 702,713 shares of its investment in GlobalNet
Financial.com ("GlobalNet") stock for approximately $20.0 million or $28.42 per
share, realizing a pretax gain on the sale of $12.0 million. The Company
originally acquired the stock in March 1999 at a cost of $11.34 per share. The
Company used these proceeds to exercise a portion of the GlobalNet option which
was entered into at March 31, 1999 and allowed the Company to purchase up to
19.9% of the then outstanding equity of GlobalNet for an adjusted exercise price
of $12.00 per share. At March 31, 2000, the Company holds 1,824,247 shares of
GlobalNet stock with a discounted market value of approximately $25.9 million.
In addition, the Company holds an unexercised portion of the GlobalNet option
which allows the Company to purchase an additional 1,104,628 shares of GlobalNet
stock with the option having a discounted market value of approximately $2.6
million. The remaining portion of the option was subsequently exercised in
April. See additional discussion in Note 7, "Subsequent Events."
4. ASSET ACQUISITION
On March 30, 2000, the Company acquired the assets of Reality Sports, Inc. for
$450,000. The Company funded this acquisition with $100,000 in cash and the
issuance of 16,667 shares of restricted common stock pursuant to Section 4(2) of
the Securities Act of 1933. The transaction was accounted for as a purchase and
the assets, which consisted primarily of technology, trademarks and service
rights, have been recorded at fair market value.
5. INCOME TAXES
During the first quarter of 2000, it was determined that the Company had
undergone a change in control as defined in Section 382 of the Internal Revenue
Code thereby limiting the amount of the approximately $14 million in net
operating loss carryforwards the Company may utilize in any given year to
approximately $9.3 million per year. Due to the Company's historical results of
operations, a valuation allowance has been provided for the majority of the
deferred tax assets. Because the Company has generated taxable income from the
gains realized on the sales of marketable securities during the first quarter,
approximately $1.7 million of the valuation allowance has been reversed in the
first quarter. This benefit is the primary reason that the provision for income
taxes is less than the statutory rate. It is anticipated that the remainder of
the valuation allowance, up to the current year limitation, will be reversed in
the second quarter due to additional gains on sales of marketable securities
(see Note 7, "Subsequent Events").
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6. CALCULATION OF EARNINGS PER SHARE
THREE MONTHS ENDED
The calculation of earnings per share was as follows: MARCH 31,
-------------------
2000 1999
-------- --------
Net income (loss) attributable to common
shareholders (a) ................................... $ 8,146 $ (1,263)
Dividends on preferred stock ......................... 37 - (c)
-------- --------
Net income (loss) attributable to common
shareholders, assuming dilution (b) ................ $ 8,183 $ (1,263)
======== ========
Average shares outstanding (a) ....................... 16,633 14,068
Effect of dilutive securities
Stock options ..................................... 348 - (c)
Convertible preferred stock ....................... 488 - (c)
-------- --------
Average shares outstanding, assuming
dilution (b) ...................................... 17,469 14,068
======== ========
Net income (loss) per common share
Basic ............................................. $ 0.49 $ (0.09)
Diluted ........................................... $ 0.47 $ (0.09)
(a) Used to compute basic earnings per share.
(b) Used to compute diluted earnings per share.
(c) Because the Company is in a loss position, the stock options and
convertible preferred stock are antidilutive.
7. SUBSEQUENT EVENTS
In April 2000, the Company exercised the remaining portion of the GlobalNet
option using a combination of a cashless exercise (through the redemption of
329,882 shares of GlobalNet stock) and proceeds received from the sale of 50,000
shares of Globalnet stock to a third party. The cashless exercise and the sale
of 50,000 shares of GlobalNet stock will generate a second quarter gain of
approximately $8.7 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Telescan, Inc. ("Telescan" or the "Company") is an industry leader in providing
Internet services for the financial and publishing industries, as well as
proprietary analytics and content to individual investors. The Company's
services and products contain proprietary software technologies developed or
acquired by the Company, which provide a powerful suite of search tools,
technical analysis and financial data. Users access the Company's services and
products through the Internet.
The Company's primary business line is a system of Internet financial services
and products provided directly to users via (i) Telescan's Internet supersite,
Wallstreetcity (HTTP://WWW.WALLSTREETCITY.COM), (ii) private-label and
co-branded
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financial websites with alliance partners, and (iii) the Company's investment
advice website (HTTP://WWW.INVESTOOLS.COM). Such financial services allow
investors to:
o Perform personalized searches with the Company's optimal search
technology using current and historical information;
o Perform fundamental and technical analysis;
o Obtain quotes, financial news and other financial information;
o Manage personal portfolios and strategize investment planning;
o Subscribe to investment advisory newsletters; and
o Access broker services.
The Company's non-financial business segment includes developing, hosting and
maintaining several third party Internet services in the publishing,
entertainment, sports and biotechnical/pharmaceutical industries.
In May 1999, the Company acquired INVESTools, Inc. ("INVESTools") in exchange
for 2,345,931 shares of the Company's common stock, in a transaction accounted
for as a pooling-of-interests. Of the total shares exchanged, 2,124,976 shares
were issued at the date of acquisition. The remaining 220,955 shares will be
issued upon the exercise of INVESTools stock options assumed by the Company.
INVESTools operates an investment advice website (HTTP://WWW.INVESTOOLS.COM),
featuring continually updated portfolio advice from recognized money managers,
as well as online investment advisory newsletters. INVESTools also has developed
strategic alliances with Quicken.com, CBS.MarketWatch.com, CNBC.com, and
multiple other sites, which distribute their advisory content.
BUSINESS STRATEGY
The Company's business strategy is to continue to expand its services and
customer base through (i) development of new and expanded strategic corporate
alliances, (ii) continued development of proprietary analysis tools, (iii)
acquisition of complementary businesses that add key services or market
presence, and (iv) global expansion.
The Company continues to expand its domestic and international presence by
developing strategic alliances and developing or acquiring analytical tools
which strategically position the Company as a leading provider of Internet
financial services and data.
Telescan is building the capability to help both domestic and international
investors to research and analyze international stocks with the ease and
convenience offered to investors interested in U.S. stocks. As the financial
world becomes increasingly integrated worldwide, all investors need information
about global markets. Telescan is positioning itself to supply these investors
with global financial information wherever they may be located.
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
Service revenues for the quarter ended March 31, 2000 increased $5,147,000 or
112% over the prior year. Revenue from business to business commerce increased
over the prior year primarily due to private label agreements with NBC,
GlobalNet Financial.com, and the amortization of license fees from agreements
signed in prior years. INVESTools revenues increased $1,969,000 primarily due to
increases in subscription, advertising, and marketing service revenues. Other
revenue primarily from product sales and dial up service continues to decline as
the market continues to shift to Internet based services.
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Cost of services increased $1,739,000 or 59% primarily due to an increase in
data and royalty cost partially offset by declining communication costs.
Marketing expenses increased $383,000 or 34% primarily due to increased
advertising costs and increased compensation expense due to increased staffing.
General and administrative cost increased $3,824,000 over the prior year
primarily due to the $1.5 million accrual for costs associated with termination
of an agreement with CyberAction, Ltd. Compensation expenses have increased $1.4
million due to growth in operations. Consulting, accounting and other fees have
increased approximately $600,000 as the Company begins to implement its
globalization strategy.
In March 2000, the Company sold 702,713 shares of its investment in GlobalNet
Financial.com ("GlobalNet") stock for approximately $20.0 million or $28.42 per
share, realizing a pretax gain on the sale of $12.0 million. The Company
originally acquired the stock in March 1999 at a cost of $11.34 per share. The
Company used these proceeds to exercise a portion of the GlobalNet option which
was entered into at March 31, 1999 and allowed the Company to purchase up to
19.9% of the then outstanding equity of GlobalNet for an adjusted exercise price
of $12.00 per share. At March 31, 2000, the Company holds 1,824,247 shares of
GlobalNet stock with a discounted market value of approximately $25.9 million.
In addition, the Company holds an unexercised portion of the GlobalNet option
which allows the Company to purchase an additional 1,104,628 shares of GlobalNet
stock with the option having a discounted market value of approximately $2.6
million. The remaining portion of the option was subsequently exercised in
April. See additional discussion in Note 7, "Subsequent Events."
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 our cash, cash equivalents and restricted cash totaled $7.1
million, a $5.5 million decrease from December 31, 1999. The decrease was a
result of net cash used by operations and investing activities, partially offset
by cash provided by financing activities. The first quarter 2000 use of cash was
primarily driven by the growth in operations and investments in strategic
partners.
Our operations used $1.2 million in cash during the three months ended March 31,
2000. Primary uses of cash included net income of $8.2 million offset by a
non-cash gain of $12.0 million. Uses of cash were offset by adjustments made for
non-cash expenses such as cost of termination of agreement with CyberAction, tax
provision accrual and depreciation. The increase in accounts receivable was
attributable to revenue growth for the three months ended March 31, 2000. In
addition, we also experienced a significant decrease in accounts payable.
Investing activities used $4.6 million in cash for the three months ended March
31, 2000. Uses of cash included purchases of investments, purchases of equipment
and capitalization of software development costs. Equipment purchases and
additions to software development costs were made to support our ongoing
operations.
Financing activities provided $316,000 in first quarter 2000, primarily
attributable to proceeds from the exercise stock options.
The Company currently has no material commitments other than those under
operating and capital lease agreements. The Company continues to experience an
increase in its capital expenditures, which is consistent with increased
staffing, and anticipates that this will continue in the future. Additionally,
the Company will continue to evaluate possible acquisitions of, or investments
in, businesses, products, and technologies that are complementary to those of
the Company, which may require the use of cash. Management believes existing
cash and investments will be sufficient to meet the Company's
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operating requirements for at least the next twelve months; however, the Company
may sell additional equity or debt securities or obtain credit facilities to
further enhance its liquidity position. The sale of additional common stock
could result in additional dilution to the Company's shareholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
On March 16, 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-3 that addresses the accounting for hosting arrangements. The
EITF consensus indicated that for those arrangements in which hosting by the
vendor is essential to the functionality of the software, the revenue should be
recognized over the term of the hosting arrangement. The Company has restated
its 1999 and 1998 financials and has filed an amended 10-K/A to restate prior
years' results to bring the Company into compliance on EITF Issue No. 00-3. The
effect of these revisions was to reduce revenues by $4,214,000 and $1,722,000
for the years ended December 31, 1999 and 1998, respectively, and to increase
deferred revenue $5,936,000 and $1,722,000 at December 31, 1999 and 1998,
respectively. The additional amounts deferred will be recognized ratably over
two to five years, based on the term of the related hosting agreement.
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. SAB 101 is effective the second fiscal quarter of fiscal years beginning
after December 15, 1999 and requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation. The Company's management believes that its revenue recognition
policy is in accordance with SAB 101 and does not believe that adoption of this
SAB will have a material impact on the Company's financial position or results
of operations.
SUBSEQUENT EVENTS
GLOBALNET
In April 2000, the Company exercised the remaining portion of the GlobalNet
option using a combination of a cashless exercise (through the redemption of
329,882 shares of GlobalNet stock) and proceeds received from the sale of 50,000
shares of Globalnet stock to a third party. The cashless exercise and the sale
of 50,000 shares of GlobalNet stock will generate a second quarter gain of
approximately $8.7 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to the impact of changes in the market values of its
investments. The Company invests in equity instruments of privately held,
information technology companies for business and strategic purposes. These
investments are included in long-term assets and are accounted for under the
cost method when ownership is less than 20%. For these non-quoted investments,
the Company's policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying values.
The Company identifies and records impairment losses on long-lived assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded. Such investments, which are in the
Internet industry, are subject to significant fluctuations in fair market value
due to the volatility of the stock market.
A downturn in the equity markets could cause a reduction in revenue since the
number of subscribers tends to increase in an upward market. This downturn could
have an adverse effect on the Company's financial position and results of
operations; however, the Company believes that the effect of such adverse
conditions would be minimized by its alliances with third parties, which in some
cases provide for guaranteed minimum payments.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is involved in certain legal actions arising in
the ordinary course of business. It is the opinion of management that such
litigation will be resolved without a material effect on the Company's financial
position or results of operations.
Effective June 11, 1999 the Company terminated its contract with Web Street
Securities, Inc. ("Web Street"). The Company activated the mandatory mediation
provisions in the contract and participated in the mediation. The differences
between the Company and Web Street were not resolved at the mediation, and on
December 13, 1999, the day of the mediation, Web Street sued the Company
alleging that the Company did not perform its obligations under the contract and
seeking damages for lost profits. The Company filed a counterclaim alleging and
seeking damages for non-payment of amounts due and unpaid for services rendered.
ITEM 2. CHANGES IN SECURITIES.
On March 30, 2000, the Company acquired the assets of Reality Sports Inc. for
$450,000. The Company funded this acquisition with $100,000 in cash and the
issuance of 16,667 shares of restricted common stock pursuant to Section 4(2) of
the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
27 Financial Data Schedule
(B) Reports on Form 8-K:
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELESCAN, INC.
/s/ PAUL A. HELBLING
Paul A. Helbling
Chief Financial Officer
A duly authorized officer of the Registrant
Date: May 19, 2000
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<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ______________________________ AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,147
<SECURITIES> 40,520
<RECEIVABLES> 6,870
<ALLOWANCES> 408
<INVENTORY> 0
<CURRENT-ASSETS> 18,893
<PP&E> 3,939
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,800
<CURRENT-LIABILITIES> 14,888
<BONDS> 0
0
1
<COMMON> 166
<OTHER-SE> (14,956)
<TOTAL-LIABILITY-AND-EQUITY> 72,800
<SALES> 73
<TOTAL-REVENUES> 9,827
<CGS> 78
<TOTAL-COSTS> 11,848
<OTHER-EXPENSES> (12,245)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (244)
<INCOME-PRETAX> 10,224
<INCOME-TAX> 2,041
<INCOME-CONTINUING> 8,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,183
<EPS-BASIC> .49
<EPS-DILUTED> .47
</TABLE>
